Payroll Issues for the Healthcare Sector

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By Dave Foxall

Sector-Specific Factors in Healthcare Payroll Operations

The current state of the healthcare industry – as in many others – is one of rising costs and declining financial resources. The consequences of this include a specific recruitment challenge as employers seek to acquire and retain certified personnel from a limited talent pool. The current workforce is extremely diverse, consisting of unionized, non-union, full-time and part-time workers and possibly has the widest variety of shift differentials and overtime needs of any industry sector. Further, industry-specific payroll management in such an environment is often complex, subject to pitfall, and accuracy is usually only maintained through the use of either tailored in-house software or by outsourcing to an industry specialist service provider.

Unsurprisingly, whether conducted in-house or by an outside third party provider, the rate of payroll automation is high. According to a CedarCrestone HR Systems Survey, the adoption of technology for administrative HR functions (including payroll) in the high-tech manufacturing industry stands at 93%. For the employer looking to introduce or upgrade payroll software and/or services, the following key issues apply.

Healthcare Industry Payroll Issue #1: Employee Self-Service (ESS)

In most sectors, a route to payroll efficiency and savings is the utilization of employee self-service (ESS) functionality, allowing employees direct access to their records, online payslips, even benefits enrollment via a corporate web portal. However, the majority of healthcare workers are not working at a terminal and access during work time to ESS services can be problematic. One answer is the use of mobile access, and according to a Bloomberg Businessweek report on mobile HR apps, 74% of healthcare employers offer employee self-service access to payroll and benefits information. These payroll options often ‘piggyback’ other ESS transactions such as those relating to shifting bidding and scheduling, for which there is a major driver in the complex healthcare workplace. A further solution, but one that appears not to have as much traction, is the provision of a HR-oriented help desk (more common when payroll management is outsourced). The CedarCrestone HR Systems Survey found that across all sectors, helpdesk adoption stood at 38% but that healthcare was a “lower than average adopter” suggesting a greater potential for leveraging this option.

Healthcare Industry Payroll Issue #2: Software Deployment Options

In much the same vein as manufacturing industry payroll questions, when it comes to the choice between on-premises and SaaS (software-as-a-service) deployments, security is usually considered to be a huge factor, especially with sensitive payroll information. While payroll data in the healthcare sector may be no more (or less) sensitive than any other in terms of employee details, other data stored as part of the health business – i.e. patient records – is of particular sensitivity. As an IDC report points out, when it comes to enterprise systems, “For some industries, defense and healthcare for example, these concerns have brought about legislature or directives that restrict that data to on-premise or private cloud services deployments.” For payroll, this means that the cost savings offered by SaaS payroll software can be balanced by the need to integrate simply and seamlessly with other business systems which, frequently, are on-premises.

Healthcare Industry Payroll Issue #3: Legislative Compliance

In recent years, the courts have seen high-profile personal and class action litigation concerning the status of healthcare employees under the Fair Labor Standards Act (FLSA). Employees classified as exempt from the FLSA are not subject to its stringent provisions regarding overtime pay and given the prevalence of shift extensions, extra hours and emergency work in the sector, overtime is a significant issue. Following successful challenges of exempt classifications, the U.S. Supreme Court has held that exemptions from overtime are narrowly construed and that the employer has the burden of proving exemption. In cases of non-compliance with the FLSA, the Secretary of Labor can file a court action against an employer for unpaid overtime compensation and civil penalties of up to $50,000 can be assessed and/or imprisonment up to six months upon a second conviction; damage awards may be doubled when violations are willful. It is therefore critical that healthcare employers take particular care over FLSA classification of employees to protect against potential penalties.

One peculiarity of the healthcare industry is that employers often engage people (e.g. doctors, researchers, etc.) who have their own staff. For the healthcare employer, having clear, tightly-written policies, procedures, and practices in place indicating who is, and who is not, an employee is critical to avoiding potential liability for the wages of these individuals. Furthermore, such policies should extend to clear guidelines on the sourcing of temporary staff, including independent contractors, particularly when using multiple staffing agencies as a single individual may be registered with several agencies and be performing multiple positions. A cautionary example is provided by global legal firm, Proskauer: “The Second Circuit Court of Appeals found that a nursing assistant who was placed at one hospital by three referral agencies was entitled to overtime from the hospital as a joint-employer, even though she never worked more than 40 hours per week for any one referral agency.”

Managing Payroll in the Healthcare Industry – Final Thoughts

Although the basic principles of payroll management are universal – tracking hours and calculating pay, depositing employee checks on time, withholding employee taxes, and compliance with federal, state, and local legislation – the healthcare industry sector carries some unique identities of its own that any payroll software or service must be capable of addressing. The issues of an under-resourced workforce, access to self-service, integrated software deployment, FLSA compliance and complicated layered employment relationships are all issues to be negotiated in order to achieve accurate and compliant payroll.